Blockchain!
I know, I know. A lot of people are excited about blockchain, but nobody really seems to know why. It’s supposed to revolutionize the world… and be awesome… and fix everything… and… I dunno, cure cancer? Few people can explain it, and those who can have trouble explaining why it matters in many specific industries. Now that Hahn Air has issued the first blockchain ticket, I’m going to take a stab at this. Wish me luck.
I was actually supposed to be the first passenger on a blockchain-issued ticket, but I had to back out due to an illness and lengthy mechanical delay combining to overwhelm my ability to function. (I may write up that experience later.) I feel awful about that, and the only way I know to even try to make it up to them is to write this up and see if I can make sense of it all.
[Disclosure: Hahn Air paid for my transport, but they are getting their money back since I didn’t go.]
Let’s start with what blockchain isn’t. It is NOT Bitcoin. Blockchain’s first rockstar application was powering Bitcoin, and many people conflate the two. But blockchain is just the technology that allowed Bitcoin to work. Blockchain should have broader applications, but before we can even talk about that, we need to discuss what exactly it is.
The Frequently-Used Bank Example
For those who prefer video, I found this explainer sent to me by Hahn Air to be pretty useful:
But let me try to put this in my own words. The point of blockchain is to facilitate transactions without needing a big, central intermediary to validate and record the transactions. Banks seem to be the most popular way to explain this, and I don’t disagree with that, so let’s do yet another example of how this will disrupt banking.
If you needed to send someone money, that nearly always goes through a bank or something like Western Union. There was a big company in the middle that validated transactions, made sure the money was there to be sent, and handled the move. If each party used different banks, you might need two of these that talked to each other. Today, you might use Paypal/Venmo or Zelle or something else, but the idea is the same.
Here’s an example. Let’s pretend I’m sending money to Lorenzo Lamas. (He probably needs it.)
Me: Hello, Cranky Bank. Please send $50 to Lorenzo Lamas.
Cranky Bank to Me: Ok, bro. We will now record this in our ledger, so your account will be debited $50. We will tell his bank.
Cranky Bank to The Bank of Lorenzo Lamas: Hello, Lamas Bank. Cranky wants to give your client $50. He has the money. We’ll send it to you. Go ahead and give it to him.
The Bank of Lorenzo Lamas to My Bank: Cool beans. We’ll do it. Send us that money.
The Bank of Lorenzo Lamas to Lorenzo Lamas: Hey man, someone pities you. We are recording a credit of $50 in your account in our ledger.
Lorenzo Lamas: Thanks! Now I can eat tonight.
This is fine, but it’s a lot of back-and-forth, and it takes some time for the money to get settled between banks. Technology has sped things up, but it is still quite the gauntlet to pass through. It can also be slow, especially for larger transactions where the banks aren’t willing to just take another bank’s word for it. It can takes days for it to be confirmed and properly deposited.
The idea of blockchain is to untangle that mess and speed up the process. If I want to send Lorenzo Lamas $50, I should be able to do that without these back-and-forth relationships and save all those costly bank fees. That’s where blockchain comes in.
You’re probably in about the same place I was when looking into this. This image seems to accurately represent what was going on in my brain, but I couldn’t figure out where the chains came in.
Let’s try it this way. If you actually visualize a bunch of blocks connected by chains, then this may help. (Seriously.)
My desire to send $50 to Lorenzo Lamas would be proposed as a block in this chain of transactions; it’s an entry in the ledger for all you accountants out there. But you can’t just add a block because you feel like it. That would be way too easy to hack and distort. I could pretend to be Lorenzo Lamas and send myself a block of $10,000,000 even though we all know he doesn’t have it.
Instead, these blocks are validated by computers that are networked from all around the globe. This network has tasks that must be completed electronically to verify in multiple places that this block represents a real transaction. How this works is entirely beyond my level of understanding, but once it is verified, it is added to the chain and etched in stone. You can’t change a block. When Lorenzo Lamas makes his comeback and can afford to send my $50 back, it would just add a new block to the chain. This is standard accounting. You don’t delete transactions that have happened. You just add to the record.
Ok, ok, so why is this better than a bank just doing it? Ah, yes, well, there are three real benefits here.
- You can eliminate the middle-men — or at least make the barriers-of-entry lower for new, more-efficient middle-men — so it should reduce friction and costs.
- You speed up the transaction settlement time with near-instant verification of accuracy via multiple checks and balances.
- You decentralize the transaction so it should be harder (but of course, not impossible) for hackers to screw this up for you… at least for now. You know hackers will eventually do magic and figure out ways.
These are all good benefits. Banks may adopt this — and already have via Ripple, for example — simply so they can reduce their own costs of doing business and remain the intermediary, but they may be tempted not to pass these cost savings along. (I still pay $25 a month for ACH so I can send business payments and a lot more if I send a wire. Something tells me that my bank doesn’t care.) But disruptors can come in and build systems that bypass these banks. Either the banks find ways to compete (as they were forced to with Zelle thanks to Venmo and others) or they die. So, hooray!
How Does This Relate to Travel?
This is where I always get hung up. I understand when it’s a consumer-to-consumer application why this matters. You can dis-intermediate without harming the integrity of the system. But if you’re buying a ticket from an airline, then the airline isn’t an intermediary in the same sense. It has technology it uses to handle the purchase, but it’s still just a bunch of people interacting with one airline. Maybe it’ll find that blockchain is a better technology to use for that purpose, but that’s hardly revolutionary. And it’s not really newsworthy either. So why is the The New York Times even covering this? I think I’ve been missing the point.
Think about this with an example. Here in the US, a travel agent may want to sell a ticket on Lao Skyway Airlines from Vientiane to Luang Prabang, an increasingly-popular route with travelers these days. But a small airline like Lao Skyway doesn’t have the infrastructure to sell electronically through travel agents all around the world, and it doesn’t want to develop it, at least not yet. It would have to join ARC and BSP, two large entities that facilitate the settlement of payments, and connect its systems to distribution systems. I don’t know the dynamics of how these systems make money, but they have costs, and they have to pay for them somehow. Sure, Lao Skyway has a website, but payment issues across countries remain. If you’ve ever had your credit card rejected while trying to buy things on a foreign company’s website, you know what I mean. Today, Hahn Air enables Lao Skyway to sell tickets to travel agents by acting as this central intermediary to help them.
Blockchain may be ideal for something like this. It may not be person-to-person, but it is person-to-smallish business. It’s not clear if this is the future for Hahn Air. As Frederick Nowotny, Head of Sales Engineering for Hahn Air, said in the press release “… Our goal is to investigate and monitor the opportunities this technology holds for travel distribution, even if widespread acceptance is still a vision of the future.” Hahn Air is just trying to stay ahead of the game so that it can be the disruptor and not the disrupted if this proves to be a breakthrough.
This technology could be bad news for ARC and BSP, or it could be something they adopt. But if it works as expected, it either forces ARC and BSP to become more efficient and less costly, or it opens the door for Hahn Air or other, potentially even more efficient competitors that haven’t even been born yet to improve this process and make it more accessible (not to mention, cheaper).
In the end, if you want to buy that ticket on Lao Skyway, blockchain should remove transaction costs from the equation while increasing processing speed, improving accuracy, and reducing the threat of being hacked. In this case, that last piece of the puzzle isn’t really the most pressing issue. It’s the rest that are most appealing.
I’ve Solved the World’s Problems
Does that make it more clear? If so, please call me up and explain it to me. I’m still not entirely there. In fact, I’m trying to get a call with the head of Winding Tree, Hahn Air’s partner in this. Hopefully that will allow me to write a second, more knowledgeable post. For now, however, I still can see how there is opportunity out there, in theory.
The ability for blockchain to be able to accurately and efficiently connect many parties to many other parties is what will make it a winner. It’s not about connecting people to a single airline or anything so simple. I’m still not completely sold on what transactions will prove to be the breakthrough for the airline industry. There will be plenty of failures, I expect. For now, however, it’s the wild west, and Hahn Air has saddled up. This will be fun to watch as the industry tries to figure it all out.
